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Groupon Faces Widespread Alcohol Sale Problems, Attorney Says

Groupon faces widespread problems related to its discount deals with restaurants and retailers who sell alcohol. According to an attorney who specializes in alcohol law, the Massachusetts crack-down of deals involving drinks is likely just the start. California, New York and at least 15 other states likely will find fault with the popular deals.

This attorney, who I am not naming at his request because he represents a Groupon competitor that is facing similar alcohol troubles, contacted me after this morning’s post to point out that, in fact, Groupon does appear to be in violation of New York and California law, and likely many more states. In fact, this memo from the California Alcoholic Beverage Commission appears to suggest Groupon, as an Internet provider soliciting sales that include (or can include) alcohol, needs to hold a license in that state.

This attorney also believes that while Groupon appears to be meeting the New York State requirement that alcohol cannot be discounted more the 50%, he also believes the NY State Liquor Authority may very well also consider Groupon to be selling alcohol as a non-licensee in violation of the law.

“Also, taking a flat “marketing fee” for each alcohol and food package sold (I think this is what Groupon does) could be a problem. Many jurisdictions require that any entity that receives any amount of proceeds from the sale of alcohol must hold a license,” this attorney wrote to me in an email. He is with a firm that specializes in alcohol industry legal work. Online discount purveyors are different from those who receive set fees in their interactions with licensed entities (such as a newspaper that runs liquor store ads or landlord of a bar) because deal site income is directly related to how many deals are sold.

My earlier rough estimate that some 14 other states probably will have issues with Groupon he characterizes as low. “[V]ery few states have taken a hard look at this. It will be interesting to see what happens with Facebook get[ting] into the game and whether more jurisidictions weigh in.”

The attorney may have a point that the lack of legal action outside Massachusetts doesn’t mean Groupon is in the clear: each of the three state representatives I called Friday (New York, New Jersey and California) hadn’t heard of Groupon. It’s a good bet Groupon simply hasn’t caught the attention of state authorities yet.

How big of a deal is this? Hard to gauge, but consider how less appealing meal and retailer deals are when alcoholic drinks are excluded. Right now, Groupon’s boilerplate language points out that deals are valid on alcohol unless stated otherwise, and its marketing language has prominently played up the aspect of discounted drinks in many of their offers.

And it’s a headache that comes at the wrong time with lead investor Eric Lefkofsky looking to take Groupon public and prove his rejection of Google’s acquisition offer wasn’t hubris. Consider Google’s $6 billion offer was nearly eight times 2010 sales. A basic (and admittedly rough) rule of thumb on what any company would fetch is three times sales, or $2.3 billion for Groupon.

As I mentioned earlier, Facebook is currently testing its Groupon competitor in a handful of markets in the southwest, Google is said to be planning its own flavor and attorneys are jumping on gift card regulations to claim Groupon is violating consumer protection laws. Plus, there is the likelihood Groupon is going to face a sales tax collection headache, according to Forbes Washington Bureau Chief Janet Novak.

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